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PEER COMPANIES

Metal companies will continue to have a weak run on the bourses in the short term after a 4% fall in the Nifty Metal Index on Friday. Further weakness in base metal prices due to weak global trade sentiment and a downgrade of China's credit rating may weigh on metal stocks. ET spoke to analysts on the expected correction in shares of some leading metal companies.

Vedanta shares fell 4.49% on Friday with copper prices declining 1% and aluminium and zinc prices declining 2% on the London Metal Exchange.Analysts expect a further fall of 4% from current levels. “Vedanta could fall between 3-4% from current levels and investors can use the opportunity to go long. The dollar index is stabilising which can lead to selling pressure in metals,“ said Ashish Chaturmohta, head of derivatives and technicals at Sanctum Wealth Management.

The stock could see some more selling pressure in the coming week after a 3.7% fall on Friday. “The stock is likely to correct up to 5% to `278 levels in the coming one and a half weeks,“ said Chandan Taparia, technical and derivative analyst at Motilal Oswal Securities. Analysts are positive on the medium term outlook of the company but maintain a hold on the stock due to subduing zinc prices. “The company's volumes have been healthy and will continue to look up but share valuations are high,“ said Goutam Chakraborty, analyst, Emkay Global Financial Services.

Shares of JSW Steel fell 3% on Friday and can see more fall in the coming sessions. They have risen 51% since the beginning of the year, but analysts don't expect the rally to extend further. “Though the stock is fairly valued, upside from current levels will be limited after the rally we have seen in the past few months,“ said Akash Jain, vice-president of equity research at Ajcon Global Services.

Shares have rallied 5.55% in the past month following the company's decision to merge its European steel operations with that of German steelmaker Thyssenkrupp AG.

However, some profit-booking is likely in the coming weeks, said analysts. “Metal stocks have done well, but a 4-5% fall in Tata Steel is likely. There is a build-up of short and long positions in steel stocks and the weakness may continue,“ said Taparia of Motilal Oswal.

Increasing aluminium demand and a clamp-down on illegal plants in China have been driving aluminium prices, benefiting local producer Hindalco. The stock has risen 20% in the past three months, but a 3-4% correction is expected in the next two weeks, said analysts. “There can be some more profit-booking but this is a short-term trend and can be used as a buying opportunity,“ said Chaturmohta of Sanctum. Shares fell 5.5% on Friday.